Mitchell Enterprises (A)

1. Formulate Mitchell's investment decision problem as a linear program.
2. How would you interpret the shadow prices in the specific context of the Mitchell setting? How might the shadow prices be used to determine hurdle rates consistent with Mitchell's available investments?
3. How might you determine how sensitive the investment decision is to changes in the projects' final payouts? In particular consider Projects D and E. Would the portfolio change if E pays only $1.34 per dollar invested? if D pays only $1.70 per dollar invested? if both D and E's payouts change as indicated?
4. How might you use the linear programming output to determine whether new projects should be included in the portfolio? In particular, consider two projects, F and G, both of which return $1.25 per dollar invested.

   

   Would you recommend that the portfolio be changed if F were available? if G were available? if both were available?

5. Assuming that F is available, use the computer output in the supplement to consider the sensitivity of the portfolio decision to the changes in projects D and E considered in question 3. Would the portfolio change if E pays only $1.34 per dollar invested? How? Does that make sense? Would the portfolio change if D pays only $1.70 per dollar invested (and E retains original payout)? How? Does that make sense?